Freight: meaning, CIF and FOB types and contracting models

Knowing the different freight types can help you better understand how to plan your transport operations and even which services to provide in your transport company.

Before getting into the abbreviations, it is worth establishing the basics: freight is the amount charged to carry cargo from one point to another and, by extension, the transport service itself. What changes from one type to another is not the cargo or truck — it is who contracts, who pays and how far each side's responsibility extends.

There is no doubt that finding good drivers and managing them properly so they stay in the fleet is complicated.

It is equally difficult to work with independent truck drivers, over whom you have no control and who may have little sense of responsibility for your business's credibility.

A third alternative is to rely on partnerships with other carriers and their fleets to contribute to your service. But is it worthwhile? Where do you actually find ways to meet your operation's demands?

Read on:

• What freight types exist?
• What are the models for contracting these freight types?
• How do you choose between freight types?
• Where can you find the best offers for providing cargo freight services?

What freight types exist?

They are divided into two types:

Before the definitions, a note to prevent confusion later. CIF and FOB are the two names dominating the conversation, but Brazil's fiscal document recognizes more options. In the electronic fiscal invoice layout, the “Freight mode” field accepts six codes, and the first two carry these exact abbreviations: “0=Freight Contracting on behalf of the Sender (CIF)” and “1=Freight Contracting on behalf of the Recipient (FOB)”. The others cover freight on behalf of third parties, the sender's own transport, the recipient's own transport and no transport.

Notice the verb the Brazilian rule uses in both cases: contracting. That is the basis of the classification — who arranges and pays for transport.

CIF – Cost, Insurance and Freight

Generally used in businesses that produce, sell and deliver directly to end consumers, this freight type starts from the principle that transport is the sender's responsibility. That is why delivery cost is usually already included in the price reaching the customer, along with the other amounts in the sales operation.

The abbreviation originated outside road transport. CIF is an Incoterm — short for Cost, Insurance and Freight. In the Incoterms 2020 summary table published by Brazil's Siscomex, in CIF “the seller contracts and pays freight, costs and insurance relating to transport of the goods to the agreed destination port”, and the term is “usable exclusively in waterborne transport (sea or inland waterway)”. In domestic Brazilian road freight, therefore, the abbreviation is used by analogy, and the meaning retained from this origin is the essential one: the sender takes on contracting and transport costs.

It is not usually a model used by carriers, which provide services to other companies. Rather, it is a freight type aimed at controlling delivery costs by the company that produces and delivers the goods itself.

It is worth making a distinction that confuses many people: the label says who pays, not who performs the service. A CIF delivery can perfectly well be carried out by a hired carrier — what the mode defines is who pays the bill.

FOB – “Free on Board”

Used primarily in business-to-business transactions, it indicates that the customer is responsible for insurance and transport costs. It is the reverse of the previous case: in Brazil's fiscal invoice layout, FOB corresponds to “1=Freight Contracting on behalf of the Recipient”. What the abbreviation records, therefore, is who contracted the freight — it is not, in itself, an allocation of taxes between the parties.

Its origin also lies in foreign trade. According to the same Siscomex table, in FOB “the seller ends their obligations and responsibilities when the goods, cleared for export, are delivered, stowed, aboard the ship at the port of shipment” — and the term, like CIF, is exclusively for waterborne transport. From then on, freight and insurance are the buyer's responsibility, which is precisely the interpretation adopted in Brazilian road transport.

In this case, carriers do work with FOB, offering partnerships both with other transport companies and with companies needing a more comprehensive logistics service beyond delivery of finished goods to the end consumer's home.

In other words, among freight types, FOB is used when the service involves transporting inputs, raw materials, etc., to manufacturing companies. Transport of finished goods also takes place at the final stage of the process.

For the carrier, the practical difference is straightforward: in CIF, your customer is the sender; in FOB, the recipient. This changes who approves the quote, who demands that the deadline be met and who receives the invoice.

What are the models for contracting these freight types?

Currently, in Brazil, there are five classifications for a company to contract cargo freight services. They are:

• Normal contracting: when the customer hires the carrier and the service consists only of collecting and delivering the product directly to the end customer.
• Subcontracting: when the company initially hired by a customer outsources delivery to another carrier. Widely used when a company is in a period of high demand and needs help taking on new services.
• Onward dispatch: when two carriers are involved in the process, covering different delivery areas. It is a strategy to expand the company's logistics and transport service coverage.
• Intermediate onward dispatch: similar to onward dispatch, the difference being that three or more carriers are involved in the delivery process.
• Multimodal-linked: when different transport modes are used in the same delivery, such as a shipment arriving by sea and then a final delivery by road. More common in large companies carrying out international transport.

These five are not just market jargon. They correspond to the service types provided for in Brazil's Electronic Transport Document (CT-e) layout, whose “Service Type” field is filled with “0 - Normal; 1 - Subcontracting; 2 - Onward Dispatch; 3 - Intermediate Onward Dispatch; 4 - Multimodal-Linked Service”. In practice, the selected model does not remain a verbal agreement: it is declared in the fiscal document for the service.

Apart from normal contracting, the other models focus on relationships between different transport companies, where one hires another to provide a specific service or they form a partnership to serve areas the other does not cover, and so on; the reasons vary.

A transport company can also contract “one-off” freight. That is, ask an independent driver to make the delivery on the carrier's behalf, even using the driver's own vehicle.

This can happen when the company:

• Does not have a specific vehicle to meet a demand;
• Has very high demand and needs support;
• Has a broken-down vehicle and the delivery must meet its deadline without fail.

How do you choose between cargo freight options?

You need to consider more than just service price, although it is very important. You also need to understand whether the available vehicles suit the transport needs and the type of cargo to be carried.

Regarding price, Brazil has a minimum rate defined by federal regulation, and it often surprises those starting out. Law No. 13.703/2018 established the National Minimum Rates Policy for Road Freight Transport, and ANTT, the National Land Transport Agency, is responsible for publishing per-kilometer minimum rates, considering distances, cargo types and the number of loaded axles.

These Brazilian rates change frequently, which is why memorizing a number does not work. ANTT itself describes two ordinary reviews a year — a broad review by January 20 and an input update by July 20 — as well as extraordinary reviews when the price of S10 diesel fluctuates by more than 5%, monitored weekly by the agency. The general rules, methodology and calculation coefficients are established in an ANTT resolution that changes over time. Before agreeing on a price, consult the table and calculator currently in force on the agency's page — not a version you saved months ago. To understand the logic behind the calculation, see how to calculate truck freight.

Another factor to consider in your decision is how long you will use the services. Do you need someone for just a single delivery, or someone available for a month of high demand in your operation?

You may even want to form a strategic partnership to expand your transport company's business without needing the budget to acquire a new vehicle fleet of your own.

All these factors help determine the best choice in your fleet management.

Do freight types influence this choice?

Not in choosing a partner. Whether the operation is CIF or FOB does not determine which carrier you hire or whether it is worth forming a partnership with another company — the criteria remain capacity, coverage, delivery time and price.

What the mode defines is something else: which side of the negotiation is responsible for freight and, consequently, who contracts and pays for the service. In Brazil, this definition is usually agreed in the purchase and sale negotiation and then recorded in the goods' fiscal invoice, in the freight mode field. The carrier comes in next, providing the service for whoever took on that responsibility.

That is why the abbreviation matters more for organizing billing and the commercial relationship than for deciding who to transport with.

Where can you find the best cargo freight?

For partnerships between companies, you need to make strategic connections, seeking those responsible for the fleet or people in administrative roles at other carriers that can complement your service.

For one-off demands, there are a few different ways to find a driver available to take on your operation's cargo freight service.

You can use online forums or other communication channels, such as trucker news portals, requesting advertising space.

Or you can use a modern platform that allows you to:

• Post a freight request detailing the cargo to be transported and its destination;
• Find the best price for the specified route;
• Identify the ideal truck for the cargo to be moved;
• Make accurate decisions quickly, securing the ideal vehicle in a few minutes.

This allows you to select the offer best suited to your business's logistics and transport services.

Whichever route you choose, record the agreement in the right paperwork: confirm that whoever will carry out the transport is compliant and, in Brazil's fiscal document, record the mode under which freight was contracted and the service type under which the service is being issued. This kind of care takes a few minutes when contracting and avoids disputes weeks later when the invoice arrives. For a broader view of operations and the costs involved, it is worth reading about road freight.

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